Members of the public pay a portion of energy bills for the world’s largest tech players as electric utility companies aim to subsidize the rapid growth of data centers from corporations including Meta and Amazon, according to a March report by Harvard Law School’s Electricity Law Initiative.
Data centers, or highly energy-intensive facilities, have long played an instrumental role in meeting the increasing demand for power. These centers are a key partnership between electric utilities and big tech companies, which use physical infrastructure to store, process, and deliver data.
“The basic principle has been that utilities and regulators — through what’s called a rate case at a Public Utility Commission — socialize the cost of all the infrastructure that’s needed to provide electricity,” Ari Peskoe, the director of the Electricity Law Initiative at HLS, said.
“That means that as demand for electricity has grown over the past 100 years, in a sense, we’ve all contributed to ensuring that society has enough energy to meet all of our growing modern needs,” Peskoe added.
The recent “ballooned” growth of data centers has upended the longstanding model of government-regulated utility rates socializing a utility’s costs of providing electricity service to the public, according to Peskoe and Eliza Martin, a legal fellow and co-author on the study.
With growth now driven by a handful of data centers owned and operated by wealthy corporations like Amazon, Meta, and Microsoft, these existing utility rate structures could transfer big tech’s energy costs to the public.
“If we follow the traditional model of socializing the costs of new infrastructure, what it effectively means is that the public is paying for new power plants,” Peskoe said. “New power lines that are really being used predominantly by a few of the world’s wealthiest corporations.”
The paper also draws attention to the secret contracts between utilities and data centers, which could be responsible for extracting profits from the public. After reviewing nearly 50 regulatory proceedings about utility rates for data centers, Peskoe and Martin observed a general lack of transparency, though details of more common utility rate cases are made publicly available.
Peskoe said a Wisconsin transmission line being built for a Microsoft data center is clearly associated with the corporation, but state utility filings black out the tech giant’s name where they would normally indicate the potential customer.
“Everybody knows what’s happening here,” Peskoe said. “There’s a related proceeding at the federal regulator, and it has to do with a contract about this particular development, and the contract says ‘Microsoft’ on it at the federal level — so what is the state doing blacking it out?”
To combat these secret contracts, Peskoe and Martin suggest that electric utilities implement special tariffs for data centers, establishing terms and conditions through public proceedings that will apply to all customers, including tech firms.
“It’s just a better vehicle than these secret contracts, which don’t have the benefit of transparency, don’t have the benefit of the public input, and just can’t be scrutinized,” Peskoe said.
One of their key recommendations was centered on energy parks, which is the idea that data centers should be required to procure their own power and not have to go through the public electric utility.
But there are still concerns over whether electric utility companies would be open to new players in a presently monopolistic market.
“That’s definitely going to be a higher lift to get legislatures to pass laws that are going to weaken utility monopolies because utilities themselves are so powerful,” Peskoe said.
Though artificial intelligence’s future in energy use and the data center market is unclear, Peskoe said he is optimistic about possible policy developments.
“State legislatures are starting to get interested in this issue, and a handful of states have bills that are seeking to contain these costs and make sure that they’re isolated to the big tech companies that are sponsoring these developments,” he said.
—Staff writer Ava H. Rem can be reached at ava.rem@thecrimson.com. Follow her on X @avar3m.
—Staff writer Iris J. Xue can be reached at iris.xue@thecrimson.com. Follow her on X @iris_j_xue.